February 6, 2017

Internet sales tax receives bipartisan support

Republicans and Democrats on Monday threw their support behind a proposal to collect gross receipts tax from major internet retailers such as Amazon and eBay.

Legislators have considered several similar proposals in recent years, but backers of House Bill 202 hope that the state’s budget crisis, a changing legal landscape and bipartisan support will send this measure to Republican Gov. Susana Martinez. She has steadfastly opposed all proposals to raise taxes.

But other Republicans who have been similarly wary of anything that sounds like a tax increase said during a meeting of the House Business and Industry Committee that they see the bill as ensuring fairness for small businesses competing with internet companies that do not have to pay the state’s 5 percent gross receipts or local taxes.

Major internet retailers for years have avoided paying state taxes because they are not based in New Mexico. House Bill 202 would simply redefine what it means to do business in the state.

The bill would classify any company selling merchandise that generates more than $100,000 worth of gross receipts taxes as doing business in New Mexico. It would not matter if the company had a physical presence in the state.

In an analysis of the bill, legislative staffers said its financial impact is uncertain.

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The bill could raise between $8.8 million and $38.3 million in the fiscal year that begins in July, according to the analysis. Counties and municipalities could gain between $5.9 million to $20.4 million through local taxes during that same time. Legislative staff believe that range will increase by a few million dollars each year.

Collecting state and local taxes from internet retailers remains a gray area in terms of legality.

Tax officials around the country had long presumed that a 1992 U.S. Supreme Court ruling prohibited them from collecting state taxes from internet companies that do not have a physical presence in their state, such as an office or warehouse.

But as courts have revisited the ruling in subsequent cases, judges have narrowed its scope, and some tax lawyers believe states have more leeway than previously thought in collecting taxes from internet retailers based well beyond their borders.

In an analysis, the New Mexico Tax Research Institute said the bill is unlikely to draw a strong legal challenge and would be relatively easy to implement compared to the tax systems of other states.

A list of groups that do not usually agree on public policy have lined up to support the measure, including the Greater Albuquerque Chamber of Commerce, New Mexico Voices for Children and the American Association of Retired Persons. Rep. Carl Trujillo, D-Santa Fe, is sponsoring the bill.

During a brief round of testimony in committee, the big question was whether the governor sign it.

“The executive branch is open to closing loopholes because they realize that’s something that is good government, good policy,” Trujillo told the committee when asked by Rep. Tim Lewis, R-Río Rancho.

Spokesmen for the governor did not immediately respond to questions about the bill.

The committee advanced the bill with only Rep. Yvette Herrell, R-Alamogordo, voting against it. The bill goes next to the House Taxation and Revenue Committee.

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